Fulfillment by Amazon (FBA) is an eCommerce business model that allows online sellers to send their inventory to an Amazon warehouse, where their products will be stored and shipped to customers by Amazon staff. FBA has become a very popular solution for eCommerce merchants of all sizes, whether or not they sell on Amazon or from their own online store — for which Multi-Channel Fulfillment (MCF) provides the same benefits.
There are several ways a retailer can benefit from using FBA and MCF to handle their fulfillment, which makes it appealing to those looking to gain a competitive edge in eCommerce — and what seller isn't looking for an advantage?
How Fulfillment by Amazon and Multi-Channel Fulfillment Benefit Sellers
Anyone who has sold products online understands the hassles and costs involved in storing, picking, packing, and shipping inventory. These are crucial steps in eCommerce, but they're also unavoidable drains for your time and money.
To begin with, warehouse space is an expense not every merchant can afford, limiting growth for sellers who are ready and able to make more sales, but can't stock enough products to meet the demand they can generate. Retailers without inventory space are sometimes forced to slow their own growth efforts, as a great marketing plan can certainly earn you many more customers, but those customers will turn away if they keep running into "Out of Stock" notifications.
The merchants most likely to be affected by this situation are small home businesses that are just starting to take off. It's frustrating because it's a small taste of success that quickly reminds the seller of their own limitations. The downside of starting to do well in your business is that you're suddenly forced to realize that the job itself is growing too, requiring more storage space, time, and effort.
And speaking of time and effort, how long does it take you to pack and ship a customer's order? A growing business isn't just going to need room for more inventory, it's going to need to be able to move higher volumes of products without sacrificing speed. You can run into the same problem here as you did with warehouse space. Your business is doing well, you're getting more customers, and it's exciting — and then the volume of orders starts to slowly overwhelm the amount of work you're capable of. Some small merchants don't realize this until they've already been up late a few nights in a row doing nothing but packing boxes, and then it hits them that maybe they can't handle this anymore.
Merchants in this situation are very likely to find Fulfillment by Amazon to be the perfect solution to their problems. They're at the stage where they're starting to need help, and making enough money that the FBA fees won't destroy their bottom line. Amazon's fees vary depending on whether you sell through Amazon with FBA or through your own online store via MCF. Compare the typical FBA fees to the multi-channel fees and make sure you budget properly.
Besides the logistics of storage and shipping which are open to sellers both on and off Amazon, FBA additionally benefits Amazon sellers by taking responsibility for customer service inquiries that relate to shipping. This includes returns, late items, orders damaged in shipment, and errors in picking and packing like sending the wrong product. As an Amazon seller using FBA, you're off the hook for these issues. You can also offer Amazon Prime shipping for your FBA items, which is often the decision-maker for customers comparing different sellers — and helps your products compete for the coveted Buy Box.
In short, if you use FBA, it's almost like you and Amazon have partnered up to make your life as a seller easier. Of course there are rules to follow and fees involved, but many sellers find the convenience of FBA far outweighs the costs and restrictions.
How to Get Started with Fulfillment by Amazon or Multi-Channel Fulfillment
Whether or not you're going to sell products on Amazon's website, you need to start by signing up for an Amazon Seller account. To access the features you need, this will need to be a Professional account, which carries a monthly fee of $39.99. Next, click the option to add Fulfillment By Amazon to your account. You'll have a choice of using FBA, MCF, or both.
Next, you'll need to prepare your products for Amazon's warehousing. Amazon provides resources for you to start this process, including tools in your seller account and easy-to-access help articles. You'll need to create a shipping plan.
You must pack your products so they're ready to be sold as individual units, and that includes labeling each one with a barcode according to Amazon's barcode requirements. Some products use a manufacturer barcode while others require you to use an Amazon barcode, which you can print from Seller Central. If you have too many products to label them yourself, you can opt for the FBA Label Service in which Amazon applies the labels to your eligible products for a fee.
If a product is eligible to be sold under the manufacturer barcode, you won't need to apply a barcode yourself. If you use the manufacturer barcode for a product you're selling on Amazon, your items will be commingled with the same item from other sellers — basically, Amazon will keep all products with the same manufacturer barcode together in the fulfillment center, but you still get the sale.
Commingled inventory has its drawbacks: when a customer buys one of your products from commingled inventory, the product shipped to the customer may not be one of the exact units you sent to Amazon. This can cause problems if another seller has sent a counterfeit or defective item to the fulfillment center. However, commingling can save you time and money, and many sellers use it without issues. Just be aware of the pros and cons.
If you're selling on Amazon, you'll also need to set up sales tax. Many sellers forget to do this and end up with a massive tax liability later on, so be sure to set it up right away.
Understanding Sales Tax for Amazon FBA
Generally, a business pays sales tax in states in which they have a presence (a nexus) and sell to customers in the same state — so for example, a brick-and-mortar business in Florida would pay sales tax in Florida because all their sales are made in Florida (since their customers walk in to make their purchases). For online sellers, the situation is a little different.
If you have no nexus in the same state as a buyer, you don't need to pay sales tax on that sale. If our example Florida brick-and-mortar store opened an eCommerce website, they'd still need to pay sales tax on sales to Florida customers, but not to customers in other states.
Sellers using Fulfillment By Amazon are considered to have a nexus in the state where their Amazon fulfillment center is located. So, you'll need to set up sales tax for your home state as well as the state where your FBA items are housed. You can click Inventory Event Detail in your Amazon Seller Central dashboard if you ever need a reminder of where your products reside.
To collect sales tax, you'll first need to determine the states in which you have a nexus and then register with those states through their respective Department of Revenue websites. Then, you'll need to set up your sales tax options in Amazon Seller Central. You'll be able to choose which items to collect sales tax on and in which states. Keep in mind that tax rules vary greatly from one state to another and you may want to contact a professional for advice.
Now, this is important: Amazon will collect the tax you specify, but will not pay it to the state. The sales tax Amazon collects on your behalf goes to you, and you need to pay it on your own. Keep careful records of your finances so you'll always be able to keep track of how much tax you've collected for future payment. Don't make the mistake of including it with your profits!
You may want to move all your collected taxes to a separate bank account so you can be sure the money will be there when it's time to file and pay. Depending on the size of your business, you may be required to file and remit these taxes on an annual, quarterly, or even monthly basis. If you're just starting out, you'll begin with an annual schedule.
If you're only using Multi-Channel Fulfillment, your sales tax will need to be set up in your eCommerce platform's admin dashboard.
Whether you want to sell on Amazon exclusively, or add it as an extra sales channel alongside your own online store, there's a lot more to learn. Remember that Amazon's Seller Central has a huge help section devoted to the ins and outs of the entire selling process, so you should be able to find up-to-date answers to any questions you might have.
We've also put together a free ebook to serve as your introduction to selling on Amazon and how to work this incredibly valuable marketplace into your overall business plan. Check it out below, and happy selling!